Historically, governments required organizations to serve the public in a certain capacity as a show of gratitude for the privileges that they enjoyed. However, this view vanished in the 1970s, and the sole purpose for the creation of corporations became to maximize profits. Very few organizations incorporated corporate social responsibility as part of their business ethos. The main goal of any business is to enhance growth and survival, especially during tough economic times. Many business owners believe that the main objective of running a business is to maximize profits. They argue that profits are needed to cover the costs of production, expansion, and diversification. However, this view is flawed. Maximizing profits should not be the only aim of a business because it encourages the exploitation of consumers and employees, abandonment of long-term business goals, and abandonment of social wellbeing.
Exploitation of Consumers
One of the shortcomings of running a business for the sole purpose of maximizing profits is the exploitation of consumers (Bowie, 2013). In the field of marketing, one of the most famous tenets is that customer satisfaction leads to loyalty, and loyalty leads to increased profits. However, many businesses do not value customer satisfaction. They bind them with contracts, raise fees, and impose penalties for the sake of the bottom line. Many corporations take advantage of confused and ill-informed customers by offering information that misleads them into making poor purchasing decisions (Bowie, 2013). Some companies exploit customers in this way by implementing antagonistic strategies that ignore the interests of customers. For example, they overprice products and services and offer merchandise of low quality. These factors lead to a reduction in the number of customers and overall profits.
The cell phone service, banking, and credit card industries are an example of businesses that exploit customers’ ignorance or lack of accurate information. Many people do not understand the consequences of violating rules regarding aspects such as minimum balances, credit limits, overdrafts, and payment deadlines. Instead of educating consumers on the sensitivity and cost of failure to follow such rules, these businesses impose hefty fines (Bowie, 2013). Many businesses start out with customer-friendly pricing strategies. However, they gradually change their strategies to exploit customers and maximize profits. Customer-centric strategies and products change into company-centric strategies and products. These strategies work for a while until and fail when customers get fed up and retaliate through lawsuits and defection to other businesses (Mackey & Sisodia, 2014). It is essential for companies that practice value-extracting strategies to realize how dangerous that trend is because it only offers short-term benefits. Businesses profit from customers’ confusion, lack of information, and poor decision making in two ways: they give varied offerings to different customer segments and increase fees and impose penalties to coerce customers to act or in certain ways (Miller, 2016).
Exploitation of Labour
The exploitation of labor refers to the practice of implementing unfair policies toward workers for the sake of increasing profits (Miller, 2016). Many businesses pay employees low wages that do not reflect their worth or expertise (Bowie, 2013). The recent campaign to increase the minimum wage in the United States emanated from the corporate culture of exploiting workers. As mentioned earlier, exploitation strategies work for a short while and then become counterproductive. For instance, a company that increases profits through exploitation makes enough money to expand to new locations and introduce new products. However, expansion needs more workers. In order to hire qualified workers, the company has to outbid its competitors and offer a slightly higher remuneration (Miller, 2016). The competition among companies that are expanding and looking for more workers means that at one point, the businesses will be unable to pay wages that will keep on soaring due to increased competition.
Labour is one of the most important aspects of production. Therefore, it is imperative for all businesses to take good care of their employees. Profit maximization strategies ignore the interests of workers and, as a result, affect their motivation negatively (Bowie, 2013). Examples of effective ways of motivating employees include bonus programs, paid vacations, and subsidized gym subscriptions. In many cases, businesses spend money to implement employee-motivation programs—employees who are not motivated exhibit low productivity (Mackey & Sisodia, 2014). As a result, the quality of their work deteriorates, and the general business output suffers. Recent research has shown that CEOs who put the welfare of their employees ahead of profits report high levels of employee engagement. High employee engagement results in the attainment of superior financial results (Bowie, 2013). Employees who work under CEOs who make profits the primary goal are usually unwilling to sacrifice for the company because they do not feel valued. However, when a CEO makes the welfare of the employees a priority, employees become more motivated and engaged, and as a result, they work harder.
Abandonment of Long-Term Business Goals
Profit maximization is usually a short-term goal because it is not sustainable in the long run (Miller, 2016). As mentioned earlier, ignoring the welfare of employees and the needs of customers compromises the long-term success of a business. Employees lose motivation, become disengaged, business output decreases, and revenues dip (Bowie, 2013). On the other hand, customers shift their loyalty to other businesses that value them and offer better services. In today’s highly globalized and competitive business world, providing quality products and services at affordable prices is important. Moreover, offering quality customer service is inescapable if a business wants to succeed (Miller, 2016). These goals cannot be achieved if a company’s main focus is to maximize profits. A business cannot sustain its operations if it is not profitable. Increasing earnings and profits are very important. However, it should not be pursued at the expense of the employees, customers, and the prosperity of the business.
One of the strategies for achieving business sustainability is the implementation of a model that aims to build confidence and trust with customers in order to earn their loyalty (Ims & Pederson, 2015). Many executives that aim for business sustainability endure less profit in the short-term for more profits in the long-term. Profit maximization compromises the potential of a business to last for many years. Business leaders should balance the need for profit with the desire to create a business that can last for many years and profit the society (Ims & Pederson, 2015). That does not imply that businesses should ignore profits because they need money to operate efficiently. They should make sustainability the primary goal and profits the secondary goal.
Abandonment of Social Wellbeing
Corporate social responsibility is one of the most important duties that businesses have towards society (Miller, 2016). It is important for businesses to contribute to society because, without it, they would be nonexistent. It can be argued that businesses exist because of society’s goodwill, and improving the communities is their responsibility. In order for businesses to embrace corporate responsibility, their profits should be adequate and not maximum (Ims & Pederson, 2015). Some business executives argue that CSR is one of the strategies that businesses use to increase their profits. They consider it an investment that bears fruits in the long-term. In that regard, many businesses do not consider CSR as a goal in itself but as a way of increasing profits by appealing to people in communities in order to build their reputation (Ims & Pederson, 2015). Many businesses divide their activities into expenses or investments. A business that maximizes profits would avoid all possible expenses and abdicate projects that do not bring in any revenue.
Three arguments are usually presented in support of why businesses should put corporate social responsibility ahead of profit maximization. First, CSR activities boost the overall development of the business (Ims & Pederson, 2015). Many investors prefer to invest in companies that have robust CSR initiatives than otherwise because they feel that they are making contributions toward the prosperity of the communities in which they operate. Second, businesses that engage in CSR boost their social statuses in the communities where they operate (Ims & Pederson, 2015). In that regard, they possess stronger lobbying power, and they are able to earn the admiration of potential customers. Third, it earns media coverage for businesses, which is a cost-effective way of advertising and reaching out to many people (Ims & Pederson, 2015).
Counterargument and Rebuttal
The arguments presented by Milton Friedman, an American economist, are usually used to support corporate profit maximization. He argued that maximization of profits was the main social responsibility of businesses (Mackey & Sisodia, 2014). It is unethical for a corporation to engage in activities that do not support the interests of the shareholders. Interests from other groups other than the shareholders should be pursued only if they benefit the shareholders. It can be deduced from that argument that a business should engage in CSR only if it promotes the interests of the shareholders (Mackey & Sisodia, 2014). Using social responsibility activities to promote shareholder interests would be unethical. This argument is weak and limiting because businesses that engage in CSR enjoy long-term benefits that enhance their sustainability. The maximization of profits concept originated from the proliferation of capitalism, whose goal was the maximization of wealth (Ims & Pederson, 2015). Businesses that maximize profits usually achieve their objectives. However, they enjoy short-term success but fail in the long-term because they lack critical components of long-term success that include employee development, customer loyalty and satisfaction, quality products and services, and high corporate status (Mackey & Sisodia, 2014).
Businesses have a responsibility to their shareholders and to society. Many executives fail to understand that their bossiness would be nonexistent were it not for society’s goodwill. Moreover, the success of individuals in society translates to success for their businesses (Miller, 2016). The most successful companies in the world have extensive CSR programs that involve financing community programs with large sums of money. If these corporations’ main goal was profit maximization, they would use that money to improve their operations and expand to new markets (Mackey & Sisodia, 2014).
However, they realize that they have a responsibility to assess and take responsibility for the effect of their operations on the environment and social wellbeing. It is difficult to maximize profits and engage in corporate social responsibility initiatives simultaneously. One of the two has to be more significant than the other. Companies that make profits their primary goal disregard their effects on the environment. It is imperative for business owners to understand that contributing toward sustainable development involves delivering economic, social, and environmental benefits to their shareholders and to the rest of society (Mackey & Sisodia, 2014). For example, Unilever is a multinational corporation that has a comprehensive CSR program that has enhanced its status significantly and attracted many customers. Their program has long-term benefits because attracting more customers translates to increased revenues and profits.
Conclusion
Shareholders are the foundation stones of any business, and if their interests are not defended and advanced, the business ceases to exist or fails. In that regard, every business makes profits for its own growth and for shareholders. Historically, the goal of capitalism was to maximize wealth, and so it became the goal of all businesses. Profits are necessary for the growth and sustainability of businesses. However, they should not be pursued at the expense of customers, employees, and sustainability. The argument that profit maximization is justified because of the high risks that investors take is weak and unconvincing. The welfare of employees and customers should come before the maximization of profits. Long-term business success comes from employee development and customer satisfaction. In that regard, it makes more business sense to have profits as the secondary goal and sustainability as the primary goal.
References
Bowie, N. (2013). Business ethics in the 21st Century. New York, NY: Springer Science & Business Media.
Ims, K. J., & Pederson, L. J. T. (2015). Business and the greater good: Rethinking business ethics in an age of crisis. Cheltenham, United Kingdom: Edward Elgar Publishing.
Miller, R. L. (2016). Business law today, the essentials: Text and summarized cases. New York, NY: Cengage Learning.
Mackey, J., & Sisodia, R. (2014). Conscious capitalism: Liberating the heroic spirit of business. Brighton, MA: Harvard Business Review Press.